KKR tie-up gives hedge fund owners a $150m payday
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Version 0 of 1. The Lib Dem donor Paul Marshall and his business partner Ian Wace are in line for a $150m (£98m) payday after selling a stake in their hedge fund Marshall Wace to the US financial giant KKR. The two men have sold a 25 per cent stake in their fund, which employs 200 people. They will get more than seven million KKR shares, worth about $20 each, plus another pile of cash to add to their multi-million pound fortunes. Mr Marshall, 56 and worth about £400m, is one of the Liberal Democrats’ biggest donors, turning over hundreds of thousands of pounds to the party’s coffers in the past few years. Mr Wace worked at the merchant bank SG Warburg before moving into fund management. The 52 year-old, also worth about £400m, delivered the news to staff on the company’s London trading floor on Wednesday morning. In a statement issued later, Mr Wace said: “Over the last few years, we have been approached by several firms looking to invest in our business, but KKR offered something different.” The complex two-stage deal will see Mr Marshall and Mr Wace receive layered payouts between now and 2022. In the first stage, they will receive a slug of cash which they have to lock up in their hedge fund until 2020. They could also make $150m by selling KKR stock in 2018. In the second stage, New York-based KKR will increase its stake by 15 percentage points over the next four years to take its ownership to 40 per cent by 2019. Half of the money they get from this additional sale must be re-invested in the fund while the other half must be used to buy KKR stock until 2022, when the duo can finally cash out. Hedge funds are traditionally valued at 5 per cent of assets under management, which gives Marshall Wace a value of about $1.1bn, based on its $22bn of assets. Based on this valuation, the stake Mr Marshall and Mr Wace are selling to KKR would be worth about $440m today. Locking up cash in the funds should also prove a boon for the two men after a solid run by the top two primary funds. The firm’s flagship fund, called Eureka, has generated an investment return of 50 per cent over the past three years and has delivered 9 per cent to investors this year despite a 1.6 per cent fall in August. The so-called trade optimised portfolio system fund, more commonly known as Tops, has risen by 62 per cent over the past three years and is up 13 per cent this year. KKR, co-founded by Jerome Kohlberg and cousins Henry Kravis and George Roberts, rose to prominence in the leveraged buyout boom of the 1980s and was the star of the best-selling business thriller Barbarians at the Gate for its jumbo-sized takeover of RJR Nabisco. The group has since expanded its strategy and now invests in property, energy, infrastructure and hedge funds. KKR will pay the cash portion from its own sizeable $10bn balance sheet rather than use client money. Two KKR members will join the board of Marshall Wace, which manages $22bn for sovereign wealth funds, pension funds and wealthy individuals. The tie-up underscores the trend by London’s hedge fund community to become more institutionalised after the fast-moving pace of the industry before the financial crisis. Cash-rich investors, keen for peace of mind, are also increasingly looking for more robust counterparties with stronger balance sheets amid a tighter regulatory environment. Paul Marshall Politically minded Marshall, 56, is better known outside the environs of Mayfair as one of the Lib Dems’ biggest donors. He co-edited the Orange Book, a bible of the party’s pro-business wing, alongside former Treasury minister David Laws. In April he donated £30m to the London School of Economics, giving his name to the Marshall Institute for Philanthropy and Social Entrepreneurship. Ian Wace Square Mile veteran Ian Wace, 52, became SG Warburg’s youngest-ever director when he ascended to the role at just 25. He went on to pioneer the firm’s prop trading desk. After 11 years he left to join Deutsche Morgan Grenfell before co-founding Marshall Wace. |